Aug. 6, 1997: Apple Rescued — by Microsoft

1997: Microsoft rescues one-time and future nemesis Apple with a $150 million investment that breathes new life into a struggling Silicon Alley icon.

In a remarkable feat of negotiating legerdemain, Apple co-founder Steve Jobs got needed cash — in return for non-voting shares — and an assurance that Microsoft would support Office for the Mac for five years. Apple agreed to drop a long-running lawsuit in which they alleged Microsoft copied the look and feel of the Mac OS for Windows and to make Internet Explorer the default browser on its computers — but not the only choice.

Microsoft got to look like a noble competitor, for a change, for what amounted to a rounding error on their annual revenues. Timing mattered: The company was in the midst of an image-tarnishing antitrust fight over its heavy-handed promotion of IE during the height of the browser wars with Netscape.

The Apple faithful had already been conditioned to expect the unexpected when Jobs was in the house. But this surprise announcement, at Macworld in Boston, was pure Jobs theater. And it came with an oddly juxtaposed (satellite!) video feed of then-Microsoft CEO Bill Gates piped into the auditorium, dwarfing Jobs on stage.

The imagery may have been unintentional but the metaphor was entirely accurate: Apple had a tiny share of the desktop computer market, had not yet revolutionized the music industry with the iPod and couldn’t possibly dare to dream it would disrupt the smartphone market with the iPhone — because there was no such thing as a smartphone.

And while the fanboys didn’t exactly know what to make of the new friendship between the corporate equivalents of a mongoose and a cobra, their instinct was, of course, to be against it. As reported at the time by The Seattle Times . “The unexpected revelation … prompted gasps of disbelief and loud boos from the audience of thousands of Mac users and software developers.”

Jobs, the Times reported, “attempted to soothe the audience, saying: ‘We have to let go of a few notions here. We have to let go of the notion that for Apple to win, Microsoft needs to lose.'”

Neither company (or executive) lost, but the world has changed in unpredictable ways and both have new competitors to worry

about — in particular, a little company that was founded a scant year later. In little more than a decade Google has become the leader in search and an emerging power in cloud computing, both vital to Microsoft, as well as a player in the smartphone platform, which horns in on Apple.

But in this simpler time the deal gave Jobs the running room to make Apple a 21st century powerhouse, which, after 18 months of losses, was hardly a forgone conclusion. On the strength of the deal Jobs — still a mere adviser to the Apple board — got himself hired as “interim CEO.” Fired in 1985, Jobs would return at Top Dog. He would receive no pay, and he could quit at any time.

“The message was clear,” Frank Rose wrote in a new introduction to his 1989 history of Apple, West of Eden . “Apple needed him more than he needed Apple.”

And Jobs set out to prove it, with a rapid dismantling of virtually everything predecessor John Sculley had done. As Rose recounts :

Over the next few months, more changes followed — each of them a repudiation of one Sculley initiative or another. The number of product lines was winnowed from 15 to four. The retail channel was streamlined: Instead of selling through competing chains in a misguided drive for “shelf space,” sales were unified through an exclusive national dealer.

Marketing was focused around a single message — the “Think Different” campaign from Chiat/Day, the newly rehired ad agency behind the unforgettable “1984” TV spot that had launched the Mac. The licensing deals that enabled other manufacturers to undercut Apple with Mac clones were terminated. Operating expenses were cut nearly in half. Within months, Apple was back in the black.

While another suitor or White Knight may have emerged instead, the Microsoft deal provided a number of things: a cash cushion, the neutralization of Apple’s chief tormentor, continued independence and — perhaps most important — a way for Jobs to make his Phoenix-like return and assemble the small inner circle that still runs everything at One Infinite Loop.

And without the alignment of these particular stars it is anyone’s guess if the iRevolution — iMac, iTunes, iPod, iPhone — would have ever happened.